Thursday, April 18, 2013

Trading with Democracies

The topic of international trade has received some heightened attention in the news over the past month. Japan will soon be joining negotiations over the Trans-Pacific Partnership (TPP) and the U.S. and European Union are moving forward with plans for a possible transatlantic FTA.

Trade is one of the few international issues that has a significant domestic political dimension. Consider the ongoing political debates over the NAFTA agreement throughout the 1990s or the recent battle over the Korea-U.S. FTA. The distribution of voters' preferences for and against trade influences the extent of trade liberalization.

As a result, a number of political scientists studied the question of what determines individuals' preferences toward international trade. Economic self-interest is one intuitive explanation. By the classic Heckscher-Ohlin model of trade, factors that are abundant in a country relative to the rest of the world gain from trade while scarce factors lose out. If we assume that losers from trade will oppose liberalization and winners will support, then we would expect that an individual's factor endowment would be associated with their trade attitudes. The U.S. is relatively abundant in high-skilled labor but relatively scarce in low-skill labor. The theory suggests that, all else equal, high-skilled U.S. workers will be pro-trade while low-skilled workers will oppose barrier reductions. Kenneth Scheve and Matthew Slaughter (2001) found support for this relationship using survey data for the U.S. (ungated paper). Anna Maria Mayda and Dani Rodrik (2005) provide further evidence from a cross-national dataset of trade attitudes (ungated).

However, there is also strong evidence that factors beyond both self-interest and economics influence individuals' trade preferences. For example, Edward Mansfield and Diana Mutz (2009) (ungated draft) show that support and opposition to trade are influenced more by individuals' perceptions of trade's impact on the overall U.S. economy rather than by how trade affects them personally. Additionally, ethnocentric and isolationist views are strongly connected to hostility toward trade. That is, openness to trade depends on more than individuals perceptions of economic gains and losses; it reflects, in part, their fundamental attitudes towards other nations.

My most recent research is motivated by this last question: how do the characteristics of potential trading partners influence support for trade? To date, research on trade preferences has looked at support for trade in general. Given that most trade liberalization in recent years has been conducted through preferential trade agreements (PTAs), trade agreements between specific countries, it is important to also understand support for trade with specific countries. Indeed, empirically, there is some evidence of meaningful variation in support for trade when respondents are asked to consider different countries. A 2008 survey by the Chicago Council on Global Affairs showed that while 59% of American respondents said they would support a trade agreement with Japan, only 41% supported a trade agreement with China.

Specifically, I'm interested in the role of trading partner democracy on support for trade. I look at whether Americans prefer to trade with other democracies, how large the effect is compared to other relevant variables, and why democracies are favored. Regime type is a particularly interesting variable since it's associated with patterns of PTA formation at the global level. Empirically, democracies tend to sign significantly more preferential trade agreements with other democracies (Mansfield, Milner and Rosendorff, 2002) (ungated). While this research project certainly does not aim to provide an explanation for these macro-level patterns (since diffuse public attitudes are only one of many inputs into trade policy decisions), it does suggest that domestic debates over trade are not simply about the distribution of gains and losses. Trading partners matter.

In the vein of forthcoming research by Mike Tomz and Jessica Weeks on the democratic peace, I use a survey experiment to test whether Americans have a preference for democracies in trade. For my pilot survey, I recruited a sample of U.S.-located respondents through Amazon's Mechanical Turk platform. Each respondent was asked to evaluate a set of hypothetical trade agreements. Each question presented the respondents with a brief vignette describing a bilateral trade agreement that would reduce barriers such as tariffs. The vignette provided information on the trading partner's regime type, level of economic development, existing trade with the United States, and number of trade agreements signed with other countries. Additionally, it provided information on estimated job losses/gains from the trade agreement (in agriculture, manufacturing and service sectors), expected welfare gains, and whether the trade agreement contains a labor rights clause. Each piece of information or "attribute" of the agreement was randomly drawn from a set of pre-defined levels (with 2 to 5 levels per attribute). Respondents were then asked whether they thought the United States government should or should not sign the trade agreement and to briefly explain why. The figure below provides an example of such a question (in this case, a rather unfavorable agreement).

The survey is a type of experiment known as a "conjoint" design. Conjoint experiments ask individuals ask individuals to evaluate profiles composed of multiple, randomly assigned attributes. Respondents are asked to rate individual profiles (as in this experiment) or choose a preferred profile from a random set (a "choice-based conjoint" design). The advantage of this design is that it allows researchers to efficiently run multiple experiments simultaneously and to test competing hypotheses. For example, Jens Hainmueller and Dan Hopkins have recently used such conjoint experiments to study voter preferences over immigration.

My sample contained 363 respondents, each answering 3 questions. Three questions were unanswered by respondents, giving a sample of 1086 approve/disapprove responses. I estimate a binary logistic regression model on the 0-1 outcome variable with all of the attribute levels as dummy variable predictors. The figure below shows the estimated effect of each level on the probability that an individual will support the trade agreement relative to the baseline level (denoted by an asterisk). Lines denote 95% cluster-bootstrapped confidence intervals, clustering on individual. Note that because confidence intervals are bootstrapped rather than computed via normal approximation, they are not necessarily symmetric around the point estimate.

Job gains/losses have the largest effect on approval, which makes sense given that the political debate in the U.S. surrounding trade policy (and foreign economic policy in general) focuses so heavily on prospective employment gains. However, even when accounting for these economic variables, trading partner democracy has a statistically non-zero and rather sizable effect. Democracy increases probability of support by, on average, 9 percentage points, with the simulated 95% confidence interval running from about 4% to 15%. That is, respondents in the sample were 9% more likely to support an agreement with a democracy than with an otherwise equivalent autocracy. This is, interestingly, roughly comparable to the estimated effect of minor job gains/losses. So while trading partner democracy is not voters' overriding concern, it does appear to have a meaningful impact.

But the more interesting question is not whether voters prefer democracies, but why. Do voters use democracy as a signal or "heuristic" to infer other favorable characteristics about a trading partner, or is the observed preference simply a taste for other, similar, states? How much of the effect of democracy is transmitted through some mediating variable? I posit three possible mediators for which democracy serves as a proxy - democracies are perceived as trustworthy or "fair" trading partners, democracies are perceived as politically closer to the United States, and democracies are perceived as respectful of citizens' rights. To estimate these mediator effects, I use a "crossover" experimental design suggested by Kosuke Imai, Dustin Tingley and Teppei Yamamoto (2013). For each of the first three questions (used in estimating the main effects above), I measure the value of one of the mediator variables in addition to the outcome. The figure below shows the estimated effect of democracy on each of the mediators. Democracies are perceived as less likely to engage in unfair trading practices, more likely to have friendly relations with the U.S. and more likely to respect their citizens' rights.

After a brief break, respondents are then asked to evaluate three more trade agreements. The second set of profiles is identical to the first in all respects except that the regime type variable is assigned the opposite value. So if the first question asked about a democracy, the fourth will ask about an autocracy. In addition, I "force" the value of one of the mediators to take on the value measured in the first experiment. For example, if the respondent says that they believe the democracy in the first experiment is a trustworthy and fair trader, they are told, as part of the profile in the fourth experiment, that "experts say this country does not engage in unfair trading practices." This design allows me to identify how much of the effect of democracy can be explained by one of these mediator variables. That is, it identifies the counterfactual level of support for an autocracy when the mediator is held at the value for a democracy and vice-versa. The mediator effect is the effect of a change in the mediator variable from the level measured under autocracy to the level measured under democracy.

The figure above shows the estimates and bootstrapped 95% confidence intervals for these mediator effects. I use logit regression to control for the other attributes since there is likely some imbalance due to smaller sample size and imperfect randomization. There are two mediation effects for each mediating variable - one when the "treatment" is held at democracy and one when it is held at autocracy. A significant difference in mediator effects suggests a possible interaction between the treatment and mediator. That is, the effect of a variable like perceived trade fairness differs when the country in question is a democracy rather than an autocracy.

Indeed, this appears to be the case for some of the mediators. While the estimated mediator effect of trade fairness for democracy is positive and statistically significant at the .05 level, the estimated effect appears to be negative for autocracy, although the 95% confidence band crosses 0. Democracies that are perceived as "unfair" trading partners receive a penalty support, but autocracies do not receive a corresponding "boost" for being trustworthy. That the estimate for autocracies is so negative may just be a function of sampling variability, but it may also hint at possible violations of mediator identification assumptions or profile order effects. These are issues I'll try to address in the next iteration of the experiment.

The most interesting mediator effect appears to be political affinity with the United States. Democracies who have unfriendly relations with the U.S. receive a statistically significant penalty to support while friendly autocracies receive a boost. It's difficult to infer the exact magnitude of the relations bonus since the precision of these estimates is much lower since each respondent only answered one question for each mediator. That is, it's still unclear whether friendly autocracies are, on average, equivalent to democracies as far as voters' trade attitudes are concerned. But the evidence is suggestive that some portion of the estimated democracy effect is transmitted through perceptions of political proximity with the United States. Democracy functions as a heuristic for "ally."

Surprisingly, human rights issues, despite their prominence in domestic trade debates, don't seem to influence voters' trade preferences on average. Neither the presence of a labor rights clause nor perceptions of the human rights record of a trading partner have a statistically discernible effect on the probability of support. It may be that labor rights clauses are not perceived as credible constraints, or that rights concerns are important to specific constituencies. The effect may be heterogeneous and averaging across the full sample misses interesting cross-individual differences.

This is of course all very preliminary research so none of the results should be taken as anything more than suggestive. The sample from Mechanical Turk is not perfectly representative of the U.S. population (MTurk samples tend to skew younger and more liberal). While research suggests that experimental effects estimated on MTurk samples tend to be comparable to effects estimated on nationally representative samples, a better (and larger) sample would be preferred. Indeed, the preliminary results do not have much power in estimating the mediation effects - the confidence bounds are large for all of the estimates. In future revisions of this design, I will likely test the mediation effects jointly (as Tomz and Weeks do for the democratic peace) rather than separately. Additionally, other trading partner characteristics omitted from the descriptions might have even larger effects when included in the profiles. I certainly welcome any suggestions for improving the design.

The preliminary evidence suggests that the type of trading partner matters for domestic debates over liberalization. In my sample, I estimate that trade agreements with democracies receive approximately a 9 +/- 5 % boost in support compared to otherwise comparable agreements with non-democracies. Furthermore, I find that some of the effect of democracy is transmitted through perceptions that democracies are more trustworthy trading partners and more likely to have close relations with the United States. Regime type functions partly as a heuristic for inferring other traits about a prospective trading partner. I certainly cannot make specific statements about how these preferences translate into government actions, but the results do imply that democratic governments (or at least the United States government) is not only constrained by the distributional economic consequences of trade, but also by the characteristics of prospective trading partners.